To tax nonprofit property is to waste time, money

NONPROFITS INC.

May 30, 1994|By LESTER A. PICKER

Ouch! In the same vein as beating dogs and pushing old ladies down steps, certain unnamed city governments -- which might just possibly include Wilmington, Del., and maybe even Charm City itself -- are seriously thinking of taxing nonprofit properties.

Certainly, the idea of taxing nonprofits for city services is not new. At various times over the past few decades, municipalities have toyed with the idea of wringing additional shekels from previously untapped sources.

What has precipitated the latest bout of revenue angst from regional city councils is the recent recession, fewer city workers to pay wage taxes, and plunging tax revenues from businesses. Urban flight also exacts its toll.

Suddenly, council members are looking around and noting that there are an awful lot of properties that aren't paying taxes, sort of like Tombstone City of the tax rolls. There are murmurings in the air that nonprofits are deriving lots of benefits from city services, and not paying their fair share.

To be sure, there are abuses of the nonprofit community's exempt status. Legislators are fond of citing cases where churches and synagogues are running profitable day-care facilities, renting out basements for weddings, or holding onto housing real estate that has long been vacated by the declining priesthood.

In these cases, the legislators say, nonprofits should be paying a fee of some sort or other. Most people agree.

I completed a study last year for a group in another city that was considering establishing a "campus" for nonprofit organizations. To a person, everyone our company interviewed felt the campus was a wonderful idea. Everyone, that is, but the politicians. In a city that has some 40% of its properties in the hands of nonprofits -- off the tax rolls, that is -- another exempt property wasn't exactly an attractive option.

Yes, it's true that nonprofits, like the rest of us taxpaying businesses, take full advantage of city services like fire and police protection, libraries and roads. But, unlike the rest of us taxpayers, they don't cough up the bucks when property taxes are due.

In the coming months, as legislators stare into the abyss of empty pockets throughout this and other cities, there's bound to be temptations to tax-exempt properties.

Is a property tax for nonprofit organizations fair? Not in this columnist's opinion. I'm not against certain use taxes -- annual fees, to a politician eager to avoid the "T" word -- but there are compelling reasons to keep nonprofit properties off the property tax rolls.

For a moment, let's avoid the economic argument. Let's put aside how much our local nonprofits contribute to the economic engine of the region. Dr. Lester Salamon and his colleagues at the Johns Hopkins Institute of Policy Studies settled that argument once and for all with their landmark study, "More Than Just Charity," a few years back. After all, for-profit businesses are also economic engines, and they do pay taxes.

Let's also put aside the facts that social needs are increasing and funds available to do good works are limited. After all, in a recession, parallel factors affect for-profit businesses, too. It's a tough world out there.

For my two cents, the case for exempting nonprofit properties can be made on two grounds.

First, nonprofits provide cost-effective services that are irreplaceable. Just how much do legislators think it would cost to replace the invaluable services supplied by nonprofits in health care, homelessness, alcohol and drug abuse, arts and culture, teen pregnancy prevention, and leadership development? Nonprofits provide us all with critical services that benefit every one of us. Every cent we take away from them to pay taxes, will come from our pockets. Don't ever doubt that.

Second, I am convinced that, taken as a whole, Americans are the most philanthropic people on Earth. We have a history and a deeply ingrained culture of caring. Those roots go deep. It is primarily through our dynamic nonprofit sector that many of us today are able to express our charitable side.

We all derive far more benefit from the work of nonprofits than we could possibly gain from taxing their properties. This is one system that ain't broke, council members. Let's not mess with it.